Alpha and Omega Semiconductor Limited

Hello and welcome to today's Alpha and Omega Semiconductor Fiscal Third Quarter 2022 Earnings Call. My name is Bailey and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the call over to Gary Dvorak. Gary, please go ahead.

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2022 third quarter financial results. I'm Gary Dvorak, investor relations representative for Quest. With me today are Dr. Mike Chang, our CEO, Stephen Chang, our president, and Yifan Liang, our CFO. 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 strategic highlights. Then, Stephen will provide business updates and a detailed segment report. After that, Yvonne will review the financial results and provide guidance for the June quarter. Finally, we'll have a question and answer session. The earnings release was distributed over wire services today, May 5, 2022, 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'll 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 involve risks and uncertainties that could cause our actual results to differ materially from such expectations. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligations to update the information provided in today's call. Now, I will turn the call over to our CEO, Dr. Mike Chang, to provide strategic highlights. Mike?

Thank you, Gary. I would like to welcome everyone to today's call. It is good to be speaking with all of you again. Q3 was another great quarter, and once again, we succeeded in outperforming our guidance. Revenue was a record $203 million, which represented 20% growth year over year, and it was the first time in our history to cross the $200 million threshold. This was achieved by obtaining additional wafer capacity from our existing foundry partners and continuing to optimize product mix. This resulted in non-GAAP growth margin of 36.7% and a record non-GAAP operating profit margin of 19.9%. Non-GAAP EPS was $1.34. representing a 74% growth year over year. I am extremely proud of this result and continue to be amazed at our team's effort and ability to execute quarter after quarter in such uncertain and challenging times. However, I am very saddened today by the evolving situation in China, particularly the lockdowns in Shanghai. As you know, our in-house packaging and testing facilities are in Shanghai, which handles a good portion of our final packaging and testing requirements prior to shipping. After the initial lockdowns were imposed in late March, our Shanghai packaging and testing facilities remained operating because our dedicated employees made an extraordinary sacrifice to live inside the facility to keep operations going. However, continuing operations required daily testing and negative COVID results. In early April, a few of our employees tested positive for COVID-19. and our operations were forced to shut down by the Shanghai government. Therefore, our ability to complete the assembly of our products and ship to customers were severely limited. Fortunately, at the end of April, the Shanghai government classified AOS as an essential business and cleared us to restart operations. We are quickly getting production starting again. However, the pace at which we can resume for four operations still remains challenging due to difficulties in bringing back the labor workforce, procuring certain raw materials, and resolving logistics bottlenecks. At this time, the timing of when the lockdowns will be lifted is still unknown. Even after the lockdown for the city is lifted, we expect sometime before all the support supply chain issues are fully resolved and the business there return to normal. As a result, we expect our revenue in the June quarter will be impacted based on the latest estimates. including three weeks of limited operations during April and ongoing logistics and supply chain challenges. We expect the lockdowns will impact June quarter revenue by approximately $20 to $25 million. However, we still anticipate June quarter revenue could be around $119 million. This represents 7% growth year over year. Excluding the Shanghai lockdown impact, we estimate the growth would have been 20% year over year for the June quarter. As our operation went back to full capacity and the surrounding supply chains normalized, we do anticipate to recover a portion of the lost revenue in the second half of the calendar year. as our wafer production was not impacted by the lockdown. As a result, we actually built a stock of pre-assembly stage wafer inventory. Given the global wafer shortage over the past years, we expect this build-up of wafer will help fully utilize our packaging assembly lines once things return to normal. If I would provide more details on our guidance during this portion of this call. But please understand, those margins are currently more difficult to focus as our allocation mix for each business line is still moving around while we re-rent our assembly lines. On a positive note, we have been strategically diversifying our packaging and testing operations and have begun to accelerate the pace of these initiatives. Our JV in Chongqing already handles a good portion of our back-end requirements, and we also have began the process to outsourcing some of these steps to other contract manufacturers, although that will take some time. Also, I think it goes without saying, we are very thankful to have our Oregon production facility, which is not exposed to this kind of risk. The impact of the Shanghai lockdown to our operations highlights the benefit of our capacity diversification strategy. We believe this impact will only be temporary and will make us even stronger in the long run. The global trend of electrification of everything is just getting started, and our power product sits at the forefront of that trend. We are building a very resilient and diversifying global business and remain well on track towards our goal of achieving $1 billion annual revenue and beyond. Before I turn the call over to Stephen, I want to say Our hearts go out to everyone in Shanghai that have been affected by this situation, and we pray for a quick resolution. I also want to give a very special thanks to our employees for their extreme sacrifice and dedication during these very challenging times. Their dedication to health has really been awe-inspiring. and made me realize once again how special our team truly is, and I'm very grateful to have their support. Thank you, and I will now turn the call over to Stephen for an update on our business and a detailed segment report. Stephen.

Thank you, Mike, and good afternoon, everyone. I will start with an update on our business and then provide color on our segment results. In the March quarter, we once again set new records for revenue and profitability driven by strong demand across all our business segments, particularly among our tier one customers. The current favorable supply and demand environment has given us more ability to optimize our shipment allocations to higher margin and strategic accounts. Moreover, we can quickly adjust to changes in customer orders by strategically redistributing parts to other parts of the business. Looking forward, in addition to the challenges of the ongoing lockdown situation in Shanghai, we are beginning to see early signs of a market demand slowdown in certain of our end markets, such as PC, smartphones, and home appliances. However, our total backlog is still a lot higher than our current capacity to meet it, even after baking in macro softness. While the Shanghai situation has been very unfortunate, it serves as a tangible reminder that our strategy to diversify our supply chain is the right one, and it further strengthens our commitment in that direction. In the March quarter, we accelerated our Oregon FAB's R&D facility upgrade and capacity expansion, We purchased more advanced lithography and related production equipment and continued the clean room construction. The product remains on track to be completed at the end of the calendar year and will contribute to approximately $70 million of additional annual revenue once in full production. Further, we also received additional wafer capacity support from our third-party foundry partners as well as our Chongqing JV. Now let me drill down into each of our business segments. Unless otherwise noted, the following figures refer to the March quarter of 2022. Starting with computing, revenue was up 28% year over year, up 2% sequentially, and represented 44% of our total revenue. These results were somewhat stronger than our prior expectations, as the March quarter is typically our seasonally weakest quarter following strong holiday shipments. The main driver of this outperformance was continued strength in notebooks, particularly from OEM customers that have a higher concentration of their business serving commercial laptop applications. We believe this was driven by return to office trends and companies refreshing employee work laptops. We deliberately targeted a higher mix of commercial projects during the past years since our Power ICs and Power MOSFETs have higher performance specifications and higher prices that better suit commercial markets. This benefited us as the consumer market is beginning to see weakening demand. Finally, in computing, we also saw continued strong demand for our products in high-end and gaming desktop PC applications. Looking ahead, we do see early signs that the PC market is beginning to soften. However, overall demand for our products remain much higher than what our capacity can fulfill. In the June quarter, we expect the computing segment to be lower due to temporary operational limitations and lockdown in Shanghai. We are optimistic that we can recover a portion of lost sales in the second half of the year once Shanghai returns to normal and as we ramp for our seasonally strong September quarter ahead of holiday sales. Turning to the consumer segment, revenue grew 24% year-over-year and 14% sequentially, and represented 22% of total revenue. The year-over-year growth was driven by share gains in gaming with a Tier 1 OEM. The sequential results were largely in line with our prior guidance. As the timing of some gaming systems near the end of the quarter were delayed, but we can anticipate to catch up in the June quarter. Looking ahead, home appliances are slowing, which is one of the larger revenue contributors to our consumer segment. We expect the June quarter to decrease high single digits sequentially, but due to overall capacity constraints, we are able to shift production to other segments to offset revenue impacts. Next, let's discuss the communications segment, which was up 6% year over year, and up 14% sequentially and represented 14% of total revenue. This segment performed slightly better than expected due to stronger demand for our battery protection products from the leading US smartphone maker and share games with Chinese OEMs. Looking forward, we expect June quarter shipments to remain flat at these levels sequentially. Finally, let's talk about the power supply and industrial segments. which accounted for 19% of total revenue. This segment was up 16% year over year and down 0.3% sequentially, which was slightly better than our expectations. In the March quarter, we strategically reduced allocations to our ACDC power supply and quick charger business following strong consecutive quarters of shipments and anticipated China smartphone weakness. Outperformance was due to strong demand from our power tool customers. This is an emerging application for us with great synergy given our product strengths in low and medium voltage products targeting battery management and brushless DC motors. Looking forward to the June quarter, we expect to maintain about the same level of allocations for our power supply and industrial segments and therefore anticipate revenues to remain about flat. To wrap up, The Shanghai lockdown has temporarily stalled our momentum and really stress tested our entire organization. However, the situation also brought into light aspects about our business that we didn't appreciate enough before, like the extreme resilience and dedication of our employees and the level of support from our business partners and customers. We are immensely grateful for this and are even more driven to keep working hard towards our goals of $1 billion in revenue. With that, I will now turn the call over to Yvonne for a discussion of our fiscal third quarter financial results and our outlook for the next quarter.

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Once again, March quarter was a record quarter for us from the top line to the bottom line. Revenue was $203.2 million, up 5.1% sequentially, and up 20.1% year over year. In terms of product mix, DMOS revenue was $140.6 million, up 4.1% over last quarter, and up 14.6% year over year. PowerIC revenue was $60.4 million, up 9.6% from the prior quarter, and up 39.1% from a year ago, which puts our PowerIC revenue over $200 million annual run rate. This reflects our strategic actions to drive PowerIC business to enhance our product mix. Assembly service revenue was $2.2 million as compared to $3.2 million last quarter and last year. Non-GAAP growth margin was 36.7% flat quarter over quarter and up from 31.9% a year ago. Non-GAAP growth margin excluded $1.3 million of share-based compensation charges as compared to $1.7 million for the prior quarter and $0.4 million last year. In addition, non-GAAP gross margin excluded $0.8 million of amortization of purchased IP, the same amount as last quarter and a year ago. Non-GAAP operating expenses were $34 million compared to $33.5 million for the prior quarter and $30.9 million last year. Non-GAAP income tax expense was $2.3 million compared to $1.3 million for last quarter and $1 million a year ago. The quarter-over-quarter increase of tax expense was primarily due to higher profit, as well as increased stock-based compensation for employees from the higher price of our stock in the March quarter. In sum, non-GAAP EPS was $1.34 per share as compared to $1.20 for last quarter and $0.77 a year ago. Moving on to cash flow. GAAP operating cash flow was $61.8 million, which included $6.4 million net customer deposits. By comparison, operating cash flow in the prior quarter was $50.8 million, which included $11.2 million customer deposits. Operating cash flow a year ago was $33.3 million, which included $20 million customer deposits. EBITDA was $48.4 million compared to $46.7 million last quarter and $36.2 million a year ago. Let's move on to the balance sheet. We completed the March quarter with cash balance of $323.1 million compared to $269.3 million at the end of last quarter. The cash balance a year ago was $192.1 million, which included $33.8 million at the JV Company. During the March quarter, we drew down a $45 million equipment loan at our Oregon FAB and repaid $2.3 million on our existing term loans. Therefore, at the quarter end, our bank borrowing balance was $65.2 million compared to $22.7 million a quarter ago. In terms of trade receivables and inventory, base sales outstanding for the quarter were 28 days flat quarter over quarter. Given the uncertainty of the global supply chain, we increased our inventory balance by $14.5 million, primarily in raw materials. Average days in inventory were 94 days reduced by 11 days versus last quarter, primarily due to the impact of deconsolidation of the JV company. Finally, property plant and equipment was $245.8 million, an increase of $49 million quarter over quarter. Our capital expenditures for the March quarter were $43.4 million. We expected a similar level of capex for the June quarter. Our Oregon Fab expansion project is on track. Cleanroom expansion was over 80% down at the quarter end, and a small portion of the equipment has been moved in. We expect the clean room construction can be completed and the majority of the equipment can be moved in during the June quarter. And we anticipate additional capacity to come online in the December quarter. Now I would like to discuss the June quarter guidance. We expect revenue to be approximately $190 million plus or minus $10 million, primarily reflecting the production lost at our Shanghai factory due to the impact of the Shanghai COVID lockdown. Our Shanghai factory had resumed partial production at the end of April. This guidance is based on the assumptions that our Shanghai factory can remain COVID free and continue to gradually ramp up its production in May and return to normal production in June. Gap gross margin to be 31.9% plus or minus 2%. We anticipate non-gap gross margin to be 33% plus or minus 2%. Reflecting the estimated impact of lost production and incremental expenses needed to cope with the Shanghai COVID shutdown and the production recovery. Non-GAAP gross margin guidance excludes $0.8 million amortization of acquired IP and $1.3 million of estimated share-based compensation charges. Gap operating expenses to be in the range of $44.3 million plus or minus $1 million. Non-gap operating expenses expected to be in the range of $36 million plus or minus $1 million. Non-gap operating expenses exclude $8.1 million of estimated share-based compensation charges and $0.2 million of estimated legal expenses relating to the government investigation. Interest expense to be approximately $0.8 million, and income tax expense to be in the range of $1.3 million to $1.5 million. With that, we will open the call for questions. Operator, please start the Q&A session.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, it is star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Our first question today comes from David Williams from Benchmark. David, please go ahead. Your line is now open.

Hey, good afternoon, and congrats on the spectacular results.

Thank you. Thank you. Thank you.

Yeah, and we certainly see and understand the lockdowns in China. I know it's a very challenging situation for you and your employees. But I wanted to see maybe if we could spend a minute and talk about the appliance market. You said you're seeing some slowdown there. Do you see that maybe from a geographic perspective? Is it more broad-based? And do you get a sense that maybe it's a demand side issue or is it simply more kidding issues where others are being affected with component shortages as well?

This is Stephen. We're seeing a little more from the demand side. It is, you know, the ongoing trend towards variables, you know, speed motors is still ongoing. The overall trend is moving. But in terms of the shipment growth, it appears to be slowing down a little bit. And I don't think it's necessarily geographically concentrated.

Okay. Fantastic. Thank you. And then maybe if we kind of think about on the OpEx side, it looks like in June you're expecting about a $2 million sequential increase there. Is there any component of that or maybe to what magnitude is the lockdown from China contributing maybe to some of that step up in spending?

David, yeah, this is Yifan. The guidance, you know, all PACs, yes, primarily, you know, we are anticipating some additional investment in our R&D and sales marketing areas, you know, increase headcounts and increase hiring activities there. uh to support our business growth so that you know our goal is to uh achieve one billion dollars in revenue and beyond so uh we are uh investing uh yeah some some expenses also back the end uh for the um related to to those recoveries but by and large is the investment you know r d and the sales marketing area

Okay, great. Thanks. And maybe one more just on the gross margin side. Obviously, some impact there, understandable. How quickly do you think that can recover? Can we see it return back to the pre-lockdown levels? And maybe what pace can you continue to maybe see some expansion there on the next shift?

Well, for the September quarter and ongoing, you know, we have to wait until next quarter's guidance. I mean, then right now, The situation over there is quite a bit challenging, and then we have to wait next quarter to give a more accurate estimate.

Okay, and that's fair, but I guess do you get a sense that you can recover the margin profile as you move forward and more normalized, notwithstanding further shutdowns? Do you think that's Because it seems like those changes for the margins out at least have been very structural in nature, and it seems like those would rebound once you get there. Do you think that's the case, or is this a new level for margins?

Oh, yeah. You know, at this point, yes, we would expect, you know, our business is still intact. You know, we are confident that we can continue to grow. And, you know, business is still there, and it's just a temporary thing. right now that got impacted by the Shanghai production lost.

Great. Thanks so much. Certainly appreciate the color and the best of luck.

Thank you. Thank you, David. The next question today comes from Craig Ellis from B Reilly Securities. Craig, please go ahead. Your line is now open.

Yeah, thanks for taking the question, and congratulations on annualizing revenues at over $800 million in the quarter, guys. Nice accomplishment. I wanted to follow up on the China packaging facility issue in Shanghai. So clearly we have a shift in revenue from the fiscal fourth quarter out into fiscal 23. The question is this. Do you think, based on your interaction with customers, that that you can recapture 65%, 75%? How much of the $22.5 million at the midpoint gets recaptured? And then what's your sense based on the product programs that you're involved in? And when that happens, would it be 75% in the first half of the fiscal year and the balance in the second half? Or how do those dynamics play out based on how your salespeople and other folks are interacting with customers?

Oh, yeah. Okay. I mean, we would expect a portion of the production loss we can catch up. Our overall wafer production was not impacted. Our Oregon and our foundries and joint ventures continue to produce wafers. So right now, we actually accumulated some wafer inventory on hand. you know, in the time of April. So, I mean, we would expect that our back end can catch up some once things go back to normal. Then, you know, in terms of percentage, it's hard to say. I mean, it depends on the production dynamics in the second half of the year. we would expect a good portion of it we can recover.

Okay, so it sounds like it's at least half and maybe more than that to recover timing. A bit TBD, one of the things you mentioned that in response to what was happening in Shanghai, Yifan, is that the company is looking at moving some of the work to Chongqing and looking at moving some of the work to to external back-end partners. And so that might imply a product requalification. But the question is this, for the changes that are being made, what's the incremental cost of packaging, whether it's moved to Chongqing or externalized, and to what extent is that in the 33% gross margin guidance? And the question David asked earlier, to what extent do that linger in the back half of the year?

I mean, this, you know, right now, this, you know, the production planning and then, you know, customer coordination, all those things are kind of still ongoing. And then, I mean, right now it's kind of fluid. You know, at this point, the 33%, an estimate for the June quarter's growth margin, non-GAAP growth margin, is primarily based on the lost production in our Shanghai facility and some of the incremental expenses. And we have to deal with the Shanghai lockdowns and logistic challenges and transportations, those things. I would expect a good portion of it and that we can return back to normal in the second half of the year. That's my current estimate. But then we have to wait until next quarter to give them more clear guidance.

Yep, that's totally understandable. It's been a fluid issue over the last two-plus years now, right? So moving on to some product-related questions, I wanted, Stephen, to ask you a few things. One, given the real heightened focus on the mix of the PC market for investors, can you just give us some sense of what you think your enterprise mix would be versus consumer mixing compute and then related to compute. I think it's generally well understood that there's some very significant gaming card product refreshes coming, some of which based on a lot of the information that's out there could be significantly higher power. Can you just talk about how you're looking at content in the gaming card business as you move into the back half of the year and we move into what is typically a period of product refresh activity for your customers.

Sure. So you're asking about the graphics card specifically, right, not computing? Is that right?

Well, there is a two-part question. The first is just computing mixed on the PC side between consumer and enterprise, and then the second one was the gaming card question.

Sure. Let me address both. So on the PC side, and in general, AOS over the past few years has been gravitating more towards addressing commercial applications within PC. And this is kind of the nature of our product mix. As we develop more higher performance MOSFETs, as well as higher performance power ICs, we naturally gravitate towards the higher performance sockets. And those tend to be used in commercial platforms at both our notebook as well as our PC customers. In general, content can be significantly higher. It depends what you're comparing against. Consumer also can vary from Chromebooks up to even higher performance consumer laptops. But in general, I would say that the BOM content for commercial type platforms are generally, you know, 30 to 50% higher BOM content potentially. It depends how many ports there are. It depends what kind of processor you have that needs to be powered. And that determines the BOM content within AAPC.

Okay. And then on the gaming card side, yep.

Yeah, on the gaming card, yes, we're in the process of designing and getting design into the next platform at our big graphics card customer. We are expecting content to increase. There are more phases. The phase count is increasing in general. So that basically means more driver mosses that will be used there. We still are in that design and in mode right now. So it's a little early to comment on the portion of business that we'll be getting. But right now, we're expecting at least the BOM content to be increasing in the next platform.

Yep, great to hear. And then lastly, Yvonne, turning it back to you, there was mention made of the $45 million FAB equipment loan associated with the expansion that's been well known there. The question is just given how high the cash balance is, why finance the equipment through that loan rather than just cash on hand?

Sure. I mean, yeah, we do have a good cash balance right now. And, you know, right now, this fixed terms loan, like five years in the loan, you know, become... available to us. I mean, the rate is pretty attractive, especially compared to the inflation rate now. And then, yeah, I would like to strengthen our balance sheet. And then, yeah, we do need some cash to support our continued growth and then CapEx expansion. So, yeah, that's how we... decided to draw down the $45 million equipment loan.

So is that a mid-single-digit rate or is that more low single-digit rate?

Ryan has the low single-digit.

Yeah, that's attractive. Okay, thanks, guys. Really appreciate the help.

Okay. Thank you.

Thank you, Craig. The next question today comes from Jeremy Kwan from Stifel. Jeremy, please go ahead. Your line is now open.

Yes, thank you. And let me add my congratulations on the 200 million quarterly milestone. I just wanted to follow up a little bit on the early signs of softness that you're seeing. I understand it's, you know, coming from consumer and maybe, you know, both the consumer portion of PC and also the consumer appliance segments. But can you elaborate a little bit more in terms of, you know, what signs that they're receiving? Is it, you know, are there kind of order cancellations or changes in backlog, you know, customer behavior? Can you just give us a little bit better insight there, please?

Sure. You know, you kind of commented on the overall backlog. But in terms of, you know, the PC customers, you know, we are seeing, you know, drop in demand for the consumer portion. We're not 100% commercial. We still serve the consumer segment of the market. It's just that we're much heavier in the commercial side. So we do see some impact there from demand softening there. Well, that just means we just serve the commercial area more. So it is coinciding with what we're hearing in market reports also that well, you know, the Chromebooks already started to drop even in the past couple of quarters. So now kind of seeing the standard consumer laptop demand also starting to drop a little bit. That just, yeah, it's just continuing that trend.

Okay. I'm in the backlog, you know, firmly. Backlog, you know, right now, you know, we have, you know, still very strong. I mean, steady, strong, and then much higher than what we can ship. I guess this reflected our customer base changes in the past few years. We are having a lot more tier one OEM customers and ODM customers. So then we are uh, forming, um, strategic partnerships with those, uh, tier one customers. Um, you know, those, those customer deposits can, uh, uh, indicate, you know, uh, the mix changes, uh, you know, customer base. And so, you know, while we're down to the, let's say, uh, downturn, uh, coming up and then, you know, those deposits, you know, what happened, uh, another way to mitigate our downside risk.

Great. Thank you for that. And maybe just going back to the Shanghai facility challenges there, can you remind us again what percent of your revenues is handled by this facility? I understand you've got some more standard equipment located in Chongqing, and then Shanghai handles most of the proprietary packaging and testing.

um you know just to get a sense of what that is right now and um and what the utilization rate maybe at this facility was prior to the lockdown uh sure then i mean shanghai back-end again handles a good portion of our overall back-end facility capacity that i mean i would say uh more around half of the overall assembly and test. Over there, in the past, yes, some packages were fully utilized, and some we still have had some additional capacity. So that's why we said with more wafers accumulated on hand in the second half of the year, we are expecting to catch up a good portion of the production that we lost in April, partially in May. So, you know, that's the overall situation.

I guess my question was, you know, if it was fully utilized prior to the lockdown, you know, have you been able to kind of add incremental capacity to, you know, to do the catch up?

Yeah, I mean, before the lockdown, you know, some packages were fully utilized and some were not. And then, yeah, also during the lockdown time, we rearranged it to more to the subcontractors and, you know, to contractors. utilize their production capacity. So there are some redirecting, you know, shuffling around. Yes, we are doing the operation planning management.

Got it. Great. And then maybe if we could turn to the, I guess, on the Chongqing side of things, you know, can you Give us a sense of what maybe the potential lockdown risk is there. Does your designation as an essential business by Shanghai government help you get something similar in Chongqing?

Right now, Chongqing is not locked down. I mean, in China, it's city by city right now. So Shanghai is in a lockdown situation, not in Chongqing.

Okay. And I guess the last question for now is on the inventory side, you know, it sounds like you've built some nice supply of pre-assembly wafers, but then you saw most of your increase is due to the raw materials. Is that considered raw materials for you or is, you know, the pre-assembly wafers, is that considered kind of more work in process? Just wondering where the where kind of the buildup is and what are kind of the main drivers, if it is substrate costs, things like that, and what kind of things you're seeing on the cost side from the inflationary pressure standpoint? Thanks.

Okay, sure, sure. The increase in our inventory, primarily in raw materials, in my comments, was mainly referring to our quarter end, March quarter end balance increase compared to December quarter end. During the March quarter, we intentionally increased some raw materials inventory, yes, in anticipation of the global supply chain challenges. wafer you know then stock and pile up and you know mike was referring to was referring to the uh april at the time frame you know one that one hour shanghai assembly house and uh was shut down but on our organ fab was continue uh continuing to produce and so did the other and our CQJV. So, I mean, that's why, you know, in the month of April, we had some additional wafers, you know, piled up. So that's where we say we expect in the second half of the year, we can catch up on some of the productions lost at our Shanghai plantings. factory in April and partially in May.

Got it. That's very helpful. Thank you. And sorry, if I could just ask one more question on the Chongqing side of things. Can you give us an update in terms of their capacity expansion plan? Are they still tracking to have they been able to receive and install equipment and get things ramped up? How much incremental capacity do you expect from them over the course of this year? Thank you.

As you know, CQJV, they raised $80 million in January, and then they already placed the order for the capacity expansion, but that lead time for the equipment, the is quite a bit long nowadays, so we do not expect them to have additional capacity come online this year.

Got it. So the growth that you're expecting for, you know, the remaining year of the year, or sorry, I guess for the remaining of the calendar year, is it dependent upon what we're going to ramp up then? That's where you're seeing all the incremental gain?

Incremental gain would come from, yes, Oregon's capacity expansion and run-up, as well as foundry supply. We have been working with foundry partners since last year, so we should be able to see some additional capacity supply during the course of this year, remaining of the calendar year.

Got it. Great. Thank you very much.

All right.

Thank you.

Thank you, Jeremy. The next question today is a follow-up question from David Williams of Benchmark. Please go ahead. Your line is now open.

Hey, thanks again. Just wanted to maybe touch on this quarter and the revenue upside. Was that driven more by volume or pricing or maybe even more so from mix shift? Just any color around what drove the upside would be helpful.

Sure. Primarily in the March quarter, we received additional wafer supplies from our foundries, as well as JV. So that's where we can produce them more and ship down more. okay great uh any thoughts on maybe what uh the unit volume growth would would have been perhaps sequentially uh i mean mix definitely changed in the summit in the during the quarter and then i mean the unit if you talk about it you know the total unit may not be higher than the december quarter but but the mix definitely uh IN FAVOR OF YOU KNOW HIGHER ASP TYPE OF PRODUCTS FOR EXAMPLE POWER IC PRODUCTS CONTINUE TO HAVE A STRONG GROWTH IN THE MARCH QUARTER SO THEN I MEAN THE YOU KNOW PRODUCT MIX AND YOU KNOW SOME SOME PRODUCTS AND YOU KNOW ASP AT A PENNY OR A COUPLE CENTS AND THEN YOU KNOW THE SUM AT THE IN THE OVER DOLLAR AND THEN I MEAN THAT'S A KIND OF A pretty wide spectrum in terms of selling price of our products. I mean, the product mix during the quarter can impact on the revenue mix quite a bit.

Okay. And maybe just the last one for me real quick is, Any commentary around the design win activity or any traction you're seeing, how the design win's been, and anything in particular that you're seeing either slowing down or picking up pace?

Design wins, I think, are still steady. We continue to lock in our business both for this year as well as for next year. We've been focusing not only on our core markets, PC, smartphone and home appliances. I know we talk about that a lot. but we're also working on building up some of our newer markets. We talk about power tools this time as an emerging area, and as we continue to diversify the breadth of our products and applications, we're also getting closer to the big customers, to the tier one customers. So it's in good shape.

Thanks, Ian. I appreciate it.

Thank you, David. There are no additional questions waiting at this time, so I'd like to pass the conference back over to the management team for closing remarks.

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

This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.