Alpha and Omega Semiconductor Limited

Ladies and gentlemen, hello and welcome to the Alpha and Omega Semiconductor Fiscal Q3 2023 Earnings Call. My name is Maxine and I'll be coordinating today's call. If you would like to ask a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I will now hand you over to Yujia Zai of the Blue Shirt Group to begin. Yujia, please go ahead when you're ready.

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2023 third quarter financial results. With me today are Stephen Chang, our CEO, 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 and can be found in the investor relations section of our website. Today's call will proceed as follows. Stephen will begin with business updates, provide strategic highlights, in a detailed segment report. After that, Yifan will review the financial results and provide guidance for the team quarter. Finally, we'll have the Q&A session. The earnings release was distributed over the wire today, May 4, 2023, after the market closed. The release is also posted on the company's website. Our earnings release and this presentation include 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 gap measures. The reconciliation of these non-gap measures to the comparable gap 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 involve risks and uncertainties that could cause our actual results to differ materially. For a more detailed description of these risks and authorities, please refer to our recent and subsequent filings with SEC. We assume no obligations to update the information provided in today's call. With that, I will now turn the call over to our CEO, Stephen Chang. Stephen?

Stephen Chang Thank you, Eugia, and good afternoon, everyone. I will begin today with a high-level overview of our results and then jump into segment detail. Our fiscal Q3 results were near the high end of our revenue and gross margin guidance. Revenue was $132.6 million, non-GAAP gross margin was 25.1%, and non-GAAP EPS was negative 21 cents. As we indicated last quarter, our performance this quarter reflects our effort to bring customer inventory levels back into balance as quickly as possible. in response to the sharp industry-wide inventory correction, particularly in PC and smartphones. As for the broader market environment, end consumer demand continues to be weak. However, we are optimistic that the worst is behind us, given the intensity of the inventory correction coupled with our proactive measures. Looking into the rest of the year, we expect to recover a good portion of the revenue decline in the upcoming June quarter with further improvement expected in our seasonally strongest September quarter. In terms of our operations, our near-term focus is continuing to work with our customers through the inventory correction and preparing for peak season. We are looking forward to the upcoming fall flagship phone launches and the holidays, all of which are big opportunities for us given our leading share with the leading OEMs in each of these end markets. As I look to the long term, as a newly appointed CEO of AOS, I am positioning the company towards growth beyond our near-term $1 billion revenue target. Over the years, AOS has grown to be a major global power semiconductor supplier to Tier 1 players across PCs, graphics, gaming, smartphones, appliances, and power tools, to name a few. However, we are just scratching the surface of potential opportunities in front of us. In the coming decade, the electrification of everything trend is set to accelerate and will shape our lives in profound ways. Growing concerns over climate change and the need to reduce dependence on fossil fuels will continue to drive the transition towards electric vehicles and clean energy. Advancement in generative AI would drive exponentially higher demand for high performance computing data centers and spur advancements in robotics. Rapid progress in battery technology will likely usher in a growing array of higher voltage portable electronics, similar to recent developments in power tools. Moreover, Continued advancements in IoT and high-performance computing will pave the way for widespread adoption of new cutting-edge products, such as smart devices for the home and work. All of these new use cases will drive more demand for power management solutions and significantly expand the market opportunity from the $50 billion TAM today. Power semiconductors have become an essential part of our daily lives in our homes, in our workplaces, and in our communities. AOS's comprehensive range of products, which covers a wide voltage spectrum, positions us at the epicenter of this monumental trend that is set to transform every facet of our lives and the industries we know today. I am determined to drive AOS towards even greater success and capitalize on this exciting future and have my sights set on AWS becoming a multi-billion dollar business by the end of this decade. We plan to take our products deeper into our existing core markets like PCs and smartphones with more integrated solutions and drive higher BOM content. We will leverage our core technology IP and strengths in advanced computing, battery, motor, and power supply, and continue to invest R&D in new adjacent markets like data centers for AI, automotive, and energy generation. Our supply chain strategy is another key piece of that puzzle that is critical to us reaching new heights over the coming decade. As we look towards our future, we remain committed to optimizing our supply chain strategy. We understand that diversification is key to maintaining reliability of supply And that's why we are exploring additional foundry partnerships in new geographical locations to expand our production capabilities. Further, we will continue to balance between internal manufacturing and third-party foundries to ensure a more robust supply chain that delivers top-notch products to our customers. Our success in attaining a record number of Tier 1 customers is no coincidence. It is a direct result of our unwavering focus on providing products that are both compelling and reliable, backed by unparalleled customer service and engineering support. We strive to solve our customers' power problems with a user-friendly system approach by providing a total solution. As CEO, I will continue to make sure this commitment to excellence remains one of our core values. and constantly strive to exceed our customers' expectations with every product and service that we deliver. Lastly, our talented and dedicated employees are who make this success possible. As we build upon our strong foundation and momentum, I will continue to foster a work environment and culture in which our employees can fully unleash their talents with respect and care. With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with computing. March quarter revenue was down 57.7% year over year and 40.4% sequentially and represented 28.7% of total revenue. These results were driven by lower shipments across all computing applications, magnified by March quarter being our seasonally weakest quarter. However, we believe inventory at some of our customers has been depleting, and we are seeing a resumption of orders for the June quarter. Our current visibility sees encouraging demand recovery in some applications. For the June quarter, we expect total computing segment revenue to be up about 40% sequentially. Turning to the consumer segment, March quarter revenue was up slightly year over year, and decreased 5.5% sequentially and represented 33.6% of total revenue. These results were in line with our expectations driven by strong gaming volumes, which grew 68.2% year over year and decreased 11.3% sequentially. In addition, we saw a 30% sequential recovery from both home appliances and e-mobility, which includes e-bikes and e-scooters. Another application that AOS is addressing with our medium voltage solutions for motor and battery management. Looking ahead, we anticipate our consumer segment revenue to be sluggish or slightly drop sequentially. Next, let's discuss the communications segment. Revenue in the March quarter experienced a considerable decline of 33.7% year-over-year and 45.4% sequentially, making up only 14.5% of total revenue. The drop in revenue was primarily attributable to weak consumer demand and the ongoing inventory correction in smartphones across all regions. The correction seems to be taking longer than we initially expected, which will cause this segment to remain weak, and we currently expect single-digit percentage decline in the June quarter. Despite these challenges, we remain optimistic about a rebound in the second half of the year in our seasonally strongest quarters for the fall launches and ahead of holiday sales. Now let's talk about our last segment, power supply and industrial, which accounted for 20% of total revenue. March quarter revenue decreased 29.6% year-over-year and 35.7% sequentially. The performance by applications in this segment was mixed. PC power supplies and quick chargers for smartphones were weak. consistent with a declining trend in PC and smartphone sales, but power tools exhibited positive signs of recovery, growing 65% sequentially. For the June quarter, we anticipate this segment will rebound with about 50% sequential growth, primarily driven by increased demand by our tier one US smartphone customer and China's high-end quick charter demand. Additionally, we anticipate continued strength in the power tools category. In closing, as we stated last quarter, our business is affected by the economic environment and industry cycle. But given our strong fundamentals, leading technology, more diversified product portfolio, tier one customer base in all our business segments, expanding manufacturing capability and supply chain, and robust balance sheet, we are in the best position we have ever been. to continue our growth momentum once this downturn is past us. Moreover, the encouraging data from our backlog and constructive conversations with our customers leads us to believe that the March quarter was the bottom and that the worst is now behind us. As such, we are optimistic about the future and look towards executing on the opportunities ahead of us. 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.