Alpha and Omega Semiconductor Limited

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2025 first quarter financial results. I'm Stephen Paleo, investor relations representative for AOS. With me today are Stephen Chang, our CEO, and Yifeng 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 a link in the investor relations section of our website. Our call will proceed as follows today. Stephen will begin business updates, including strategic highlights and a detailed segment report. After that, Yifong will review the financial results and provide guidance for the December quarter. Finally, we will have the Q&A session. Kearney's release was distributed over the wire today, November 4, 2024, 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 GAAP measures. 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 involve risks and uncertainty that could cause our actual results to differ materially. 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'll turn the call over to our CEO, Steven Chang. Steven?

Thank you, Steven. Welcome to Alpha and Omega's fiscal Q1 earnings call. I will begin with a high-level overview of our results and then jump into segment details. We delivered fiscal Q1 revenue and EPS results in line with our guidance. Revenue was $181.9 million. Non-GAAP growth margin was 25.5%. Non-GAAP EPS was 21 cents. We saw broad-based demand due to seasonality in the September quarter with sequential growth in each of our major segments. Relative strength came from PC desktops, notebooks, and servers in our computing segment, gaming and wearables within consumer, strong growth from a Tier 1 US smartphone customer within communications, and ACDC power supplies and quick chargers in the power supply and industrial segment. We have delivered on our commitments and continue to make unwavering strides to transform from a component supplier to a total solutions provider. leveraging strengths in high-performance silicon packaging and intelligent ICs. We aim to capture market share and increase BOM content with a broader portfolio. For example, we are leveraging our strength in graphics cards and introducing new vCore products for opportunities in advanced computing and AI data centers. In smartphones, trends like foldable screens, AI integration, and faster charging offer growth opportunities. In addition to computing and communication, we see long-term potential in solar, e-mobility, gaming, and home appliances, all driven by the global push for efficient, sustainable energy solutions. With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with computing, September quarter revenue was up 8.6% year-over-year and 6.6% sequentially and represented 42% of total revenue. These results were slightly better than our original expectation for mid-single-digit growth. As mentioned before, we saw relative strength from PC desktops, notebooks, and servers, which was offset by software, graphics, and AI-celerated cards due to a pause before the next platform transition. We are increasingly confident in our position in advanced computing. Our backlog for both graphics cards and AI-celerated cards is now growing due to the new platform transition. At this stage, we're working closely with add-in card makers in Asia as they bring up their boards and prepare for mass reduction. With the new platform, we expect BOM content to increase as more power stage ICs paired with our controller are being used to power the GPU. These design elements highlight the strength of our customer relationships and our total solutions approach as we supply both the controller and power stages. Additionally, we are collaborating with customers on larger data center opportunities slated for 2025. We anticipate having more to talk about with these developments during our next earnings report. Looking forward into the December quarter, the PC market is expected to decline with seasonality, but we expect the computing segment to slightly grow sequentially with share gains in desktops, as well as strength in graphics cards and servers, offset by notebook and tablet market seasonality. Turning to the consumer segment, September quarter revenue was up 2% year-over-year and 12.4% sequentially and represented 17.4% of total revenue. The results were in line with our forecast for low double-digit sequential growth and were primarily driven by gaming, wearables, and TVs, offset by a decline in home appliances. This was the second quarter of sequential growth in gaming, so we are confident the inventory correction is now behind us. However, we don't expect meaningful growth until the customer transitions to the next platform. Wearables were a notable standout in the quarter, reaching record levels on market share gains and new versions of smartwatches and headphones. For the December quarter, we forecast close to a 30% sequential decline in the consumer segment driven by seasonal decline in gaming and TVs, post-new product launch impacts in wearables, and continued softness in home appliances. Next, Let's discuss the communication segment. Revenue in the September quarter was up 14.2% year-over-year and 29.4% sequentially and represented 19.5% of total revenue. These results were above our double-digit sequential growth expectations as our Tier 1 US smartphone customer prepared for its product launch. In some of their high-end models, we are seeing an increase in BOM content as they are moving toward a higher charging current. We also saw strong sequential growth from China OEMs, offset by sequential declines from Korea. As mentioned last quarter, we are benefiting from a mixed shift to more premium phones. Looking ahead, we anticipate a low double-digit sequential decline in the December quarter due to seasonality and overall limited visibility on smartphone sales through heading into next year. Now, Let's talk about our last segment, power supply and industrial, which accounted for 17.5% of total revenue and was down 23.7% year over year, but up 15.6% sequentially. The results were at the low end of our forecast for 15 to 20% sequential growth, but were still driven by seasonal strength in ACDC, power supplies, and quick chargers. Within an industrial, solar remains soft, while the recovery in quick chargers has now started. We see additional opportunities in 2025 for quick chargers due to increased bond content driven by higher charging currents. We're also leveraging relationships in Taiwan to partner on DC fans for server racks. For the December quarter, we expect the power supply and industrial segment to grow low single digits sequentially, primarily driven by e-mobility and continued growth from quick chargers. This growth will be partially offset by a seasonal decline in ACDC power supplies. In closing, the September quarter was in line with our expectations. The broad-based growth confirms the inventory corrections we experienced over the past year are complete. Seasonality has returned, and new markets like AI and advanced computing are emerging. We expect a typical seasonal decline in the December quarter, primarily driven by notebooks, tablets, gaming, wearables, and TV, but partially offset by desktops, graphics cards, servers, e-mobility, and quick chargers. At this point, our visibility into 2025 is limited, and the calendar first quarter of 2025 is typically seasonally soft as well. However, we are optimistic and poised for growth. Bolstered by advanced technology, a diversified product portfolio addressing a broadening array of end markets, and a premier customer base across all business lines. We are steadfast in executing our technology roadmap. We are excited about our transition from a component supplier to a total solutions provider. These strategic efforts over the past few years are starting to bear fruit as evidenced by our success in designing in both controllers as well as power stages into PCs, graphic cards, and now expanding into AI applications. This transition will only accelerate going forward as we tap into new opportunities and increase our share of BOM content. In summary, Power management underpins key trends such as AI, digitalization, connectivity, and electrification, especially as we move towards a sustainable low-carbon society. We see many opportunities in advanced computing and data centers, increasing integration of AI in PCs and smartphones, and higher smartphone charging currents with multiple batteries and screens. Beyond computing and communication segments, we remain optimistic on the underlying power trends in adjacent markets, such as solar, motors and e-mobility, gaming, home appliances, and power tools. With that, I will now turn the call over to Yifan for a discussion of our fiscal first quarter financial results and our outlook for the next quarter. Yifan?

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the quarter was $181.9 million, up 12.8% sequentially and 0.7% year-over-year. In terms of product mix, DMOS revenue was $122.5 million, up 20% sequentially and 0.8% over last year. PowerIC revenue was $52.9 million, up 0.4% from the prior quarter and from a year ago. Assembly service and other revenue was $0.9 million as compared to $1.4 million last quarter and $0.7 million for the same quarter last year. License and engineering service revenue was $5.6 million for the quarter versus $5.1 million in the par quarter and $5.6 million for the same quarter a year ago. Non-GAAP gross margin was 25.5% compared to 26.4% last quarter and 28.8% a year ago. The quarter-over-quarter decrease was mainly impacted by ASP erosion and mixed changes. Non-GAAP operating expenses were $38.5 million compared to $39.3 million for the prior quarter and $40.8 million last year. The slight quarter-over-quarter decrease was primarily due to lower professional fees and fluctuation of engineering expenses. Non-GAAP quarterly EPS was $0.21 compared to $0.09 per share last quarter and $0.33 per share a year ago. Moving on to cash flow. Operating cash flow was $11 million, including $8.4 million of repayment of customer deposits. By comparison, operating cash flow was $7.1 million in the prior quarter and $13.8 million last year. We expect to refund $5.8 million customer deposits in the December quarter. EBITDA for the quarter was $20.6 million, compared to $16 million last quarter and $23.3 million for the same quarter a year ago. Now let me turn to our balance sheet. We completed the September quarter with a cash balance of $176 million compared to $175.1 million at the end of last quarter. Net receivables increased by $12 million sequentially Day sales outstanding were 15 days for the quarter compared to 12 days for the par quarter. Net inventory decreased by $10.8 million quarter over quarter. Average days in inventory were 125 days compared to 148 days in the last quarter. CapEx for the quarter was $6.7 million compared to $7.2 million for the par quarter. We expect CapEx for the December quarter to range from $6 million to $8 million. Now, I would like to discuss December quarter guidance. We expect the revenue to be approximately $170 million plus or minus $10 million. Gap gross margin to be 24% plus or minus 1%. We anticipate the non-gap gross margin to be 25% plus or minus 1%. Gap operating expenses to be in the range of $45 million plus or minus $1 million. Non-gap operating expenses are expected to be in the range of $38.8 million plus or minus $1 million. Interest expense to be approximately equal to interest income and income tax expense to be in the range of $1 million to $1.2 million. With that, We will open the call for questions. Operator, please start the Q&A session.