Alpha and Omega Semiconductor Limited

end. If you'd like to queue for a question, you can do so by pressing star 1 on your telephone keypad. I'd now like to turn the call over to Stephen Pelleo. Please go ahead.

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2025 third quarter financial results for the quarter ended March 31st, 2025. I'm Stephen Pelleo, investor relations representative for AOS. 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 via the 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, Yifan will review the financial results and provide guidance for the June quarter. Finally, we will have a Q&A session. The earnings release was distributed over the wire today, May 7, 2025, 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 about risks and uncertainties 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 obligation to update the information provided in today's call. Now, I'll turn the call over to our CEO, Stephen Chang. Stephen?

Thank you, Stephen. Welcome to Alpha and Omega's fiscal Q3 earnings call. I will begin with a high-level overview of our results and then jump into segment details. We delivered fiscal Q3 revenue and EPS results at the high end of our guidance, driven by better-than-expected demand in computing. Revenue was $164.6 million. Non-GAAP growth margin was 22.5%. Non-GAAP EPS was a loss of 10 cents. Total revenue increased 9.7% year-over-year and declined 4.9% sequentially. As previously noted, licensing revenue began to wind down in the March quarter. Excluding licensing, our product revenue was up 11.6% year-over-year and down 3.5% sequentially. We saw seasonal sequential declines in fiscal Q3 from each of our major segments, except the computing segment, which grew slightly sequentially against seasonality driven by tablets and notebooks. The computing segment increased nearly 15% year over year. Looking ahead, we face a dynamic landscape with macroeconomic, geopolitical, and trade-related uncertainties. Currently, our direct tariff exposure is minimal due to limited U.S. shipments, but we're closely supporting customers navigating supply chain complexities to ensure compliance and minimize disruptions. While we're seeing a near-term uplift in the first half of the calendar year, broader visibility for the second half of 2025 remains uncertain. Nonetheless, we are delivering on our commitments and advancing our transformation from a component supplier to a total solutions provider. Our goal is to leverage premier customer relationships to expand market share and increase bond content with a broader portfolio. 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 up 14.8% year over year and up 3.6% sequentially and represented 47.9% of total revenue. These results were ahead of our original expectations for a slight decline. The upside was driven by better than expected tablet demand, with revenue nearly doubling year over year to a quarterly record due to market share gains, as well as some demand pull-in for notebooks due to tariff uncertainties. In the March quarter, we continue to experience robust demand for graphics and AI accelerator cards, driven by a key customer scaling their next-generation platform. Looking ahead to June, we anticipate even stronger performance with graphics card revenue projected to reach a record high. For AI applications, demand for high-performance commute remains robust, and we are encouraged by this continued strong growth in data center capital spending. In Q1, we broadened our penetration with an existing premier customer to secure a design win in one data center application with a notable increase in BOM content. This is a testament to our ability to provide total solutions with multi-phase controllers and multiple power stages per GPU. Volume production for this program started in the March quarter and will continue into the June quarter. Design-in activity is still ongoing for additional programs. However, visibility for the second half of the year remains limited due to uncertainties in end market demand. In the PC market, we expect continued pull-in activity through the June quarter driven by fluid trade regulations. In summary, we expect the computing segment to increase mid-single digits in the June quarter and more than 15% year-over-year. The sequential growth is driven by PC-related pull-ins and strength in graphics cards. However, it is important to note that visibility into the second half of the year remains limited due to uncertain macro environment and evolving trade policies. Turning to the consumer segment, March quarter revenue was down 9% year over year and down 4.9% sequentially and represented 13% of total revenue. The results were in line with our forecast driven by seasonality in gaming and home appliances, as well as a pullback in wearables following a record level achieved in the third calendar quarter of 2024. For the June quarter, we forecast more than 25% sequential growth in the consumer segment driven by gaming and home appliances. Gaming is expected to be particularly strong due to pull-ins for a targeted marketing push from a key customer. Next, let's discuss the communication segment. Revenue in the March quarter was up 5.8% year-over-year, down 14.4% sequentially, and represented 17.2% of total revenue. The results were in line with our expectations for a seasonal sequential decline from our Tier 1 U.S. smartphone customer, while China OEMs moderated only slightly, and Korea was sluggish as customers prepared for product launches in their first calendar quarter. We believe communications results continue to reflect a combination of market share gains, a mixed shift to higher end phones in China, and generally higher charging currents, driving increased bond content. Looking ahead, we anticipate flatter sequential growth in the June quarter for the communications segment. By region, we expect growth from smartphone customers in the U.S. and Korea, offset by slower sales from China. Now let's talk about our last segment, power supply and industrial, which accounted for 19.9% of total revenue and was up 32.4% year over year and down 6.2% sequentially. The results were ahead of our forecast for a low teen sequential decline, primarily driven by a seasonal decline in quickchargers, offset by sequential growth in e-mobility and ACDC power supplies. As we stated before, we see additional opportunities in 2025 for quick charges due to increased bond content driven by higher charging currents. Further, we are leveraging relationships in Taiwan to partner on DC fans for server racks. For the June quarter, we expect revenue to be flat to slightly down sequentially for the power supply and industrial segment primarily driven by a seasonal increase in quick chargers and ACDC power supplies offset by lower e-mobility revenue. In closing, we are pleased that March quarter results were better than expected, ahead of seasonality primarily due to pull-ins in the computing segment. Looking ahead, we face a dynamic geopolitical and macroeconomic environment. We are monitoring developments, ensuring compliance, diversifying our supply chain, and collaborating with customers to minimize disruptions. For the June quarter, driven by strength in computing and consumer segments, We currently expect low to mid single-digit sequential revenue growth, suggesting June quarter revenue should approximate the levels achieved in the December quarter, despite the stronger March results and discontinuation of licensing revenue. Excluding the impact from discontinued licensing revenue, we expect mid to upper single-digit revenue growth. Gross margins in June should also approach the level achieved in the December quarter, driven by improved utilization rates and a richer product mix. Our business fundamentals remain strong, supported by cutting-edge technology, a diverse product portfolio, and marquee customer base. We expect revenue growth in calendar 2025 driven by new market expansion, market share gains, and increased bond content. While near-term uncertainties remain, our focus remains steadfast on executing our strategy and delivering sustained value for our stakeholders. With that, I will now turn the call over to Yifan for a discussion of our fiscal third 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 $164.6 million, down 4.9% sequentially and up 9.7% year over year. In terms of product mix, DMOS revenue was $106.8 million, down 5.4% sequentially, and up 13.9% over last year. Power AC revenue was $54.6 million, up 1.6% from the prior quarter, and 9.2% from a year ago. Assembly service and other revenue was $0.4 million, as compared to $1.1 million last quarter and $1.2 million for the same quarter last year. License and engineering service revenue was $2.8 million for the quarter versus $5.4 million in the prior quarter and $5.1 million for the same quarter a year ago. This license and engineering service contract was completed in mid-February. Non-GAAP growth margin was 22.5% compared to 24.2% last quarter and 25.2% a year ago. The quarter-over-quarter decrease was mainly impacted by lower license and engineering service revenue in the March quarter. Non-GAAP operating expenses were $39.7 million compared to $39 million for the prior quarter and $38.9 million last year. The slight quarter increase was primarily due to higher payroll tax expenses given the start of a new calendar year. Non-GAAP quarterly EPS was negative 10 cents compared to 9 cents per share last quarter, a negative 4 cents per share a year ago. Moving on to cash flow. Operating cash flow was $7.4 million, including $9.6 million of repayment of customer deposits. By comparison, operating cash flow was $14.1 million in the prior quarter and $28.2 million last year. We expect to refund the $2.7 million customer deposits in the June quarter. We also repurchased 306,000 shares of employee restricted stock units vested during the quarter for $9.4 million. EBITDA for the quarter was $11.2 million compared to $16.8 million last quarter and $11.6 million for the same quarter a year ago. Now let me turn to our balance sheet. We completed the March quarter with a cash balance of $169.4 million compared to $182.6 million at the end of last quarter. Net trade receivables increased by $8.6 million sequentially. Day sales outstanding were 11 days for the quarter compared to 12 days for the prior quarter. Net inventory increased by $4.4 million quarter over quarter. Average days in inventory remained at 129 days for the quarter. CapEx for the quarter was $8.1 million compared to $7.4 million for the par quarter. We expect CapEx for the June quarter to range from $12 million to $14 million. Now I would like to discuss June quarter guidance. We expect revenue to be approximately $170 million plus or minus $10 million. Gap gross margin to be 22.9% plus or minus 1%. We anticipate the non-gap gross margin to be 24% plus or minus 1%. Gap operating expenses to be $47.1 million plus or minus $1 million. Non-GAAP operating expenses are expected to be $40.2 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 $0.9 million to $1.1 million. With that, We'll open the call for questions. Operator, please start the Q&A session.

Great. If you would like to queue for a question, you can do so by pressing star 1 on your telephone keypad. If for any reason you'd like to remove your question, it's star 2. But again, to join the question queue, please press star 1. Our first question is from David Williams with Benchmark. Your line is now open.

Hey, good afternoon. Thanks for taking my question, and certainly congrats on the good quarter here. I guess maybe, Stephen, I missed a little bit of the beginning of the call there, but I wanted to see if you could help kind of quantify the magnitude of the pull-ins that you discussed on the PC side, and maybe also talk about any of the graphics cards, a success that you've had this quarter, and how you're kind of thinking about that going forward. Thanks.

Sure. So for the first part of the question about the pull-ins, certainly we did see some increased demand because our customers are trying to take advantage of the current situation of the tariffs. And this is more pronounced, especially in the computing segments, particularly with our notebook shipments. So normally the March quarter is a down season and this was muted somewhat because of the tariff and the pull-ins from some of our PC customers. To quantify that, I think we beat the midpoint by about $6 million. Maybe half of that could come from the notebook increase. We also can expect to see that going into the June quarter as well. Regarding our graphics business, we are excited to be taking part in selling into the new versions of both graphics cards as well as the AI accelerator cards. We already started shipping at the end of last year and we continue to ship at the beginning this year and going throughout this year. And this portion, I think we are encouraged by what we see and our customers are pulling product. They are getting GPU allocation and they are shipping out. So we're glad to take a part of that.

Great. Certainly a great fellow there. And then maybe secondly, can you kind of help us kind of understand the tariff impact to you all, just kind of given where your manufacturing is and your presence there? How much of your product or sales do you think come back into the U.S.? And maybe is there any way to kind of size that tariff impact overall from outside of what the demand could be, but just your direct impact?

Okay, sure. Obviously, this is a very dynamic and challenging and evolving issue for us, also for the semiconductor industry and for the overall macro economy. Tariffs definitely created a lot of unknowns. There are direct impact and indirect impact. Our direct exposure to tariffs so far is only very limited, as our shipments into the US are minimal. So indirect impact on the overall demand for end products and devices remains to be seen. It's not clear at this point. We are monitoring the situation ensuring food compliance in multiple countries, areas, so that we can make adjustment quickly in response to regulatory developments. So we are also working closely with our customers to minimize any disruptions so that we can meet their supply requirements. Great.

And then just one last one for me, if possible. But I know that next quarter you talked about the licensing revenue and that engineering service that's falling off. And I know that was expected to be kind of a margin impact, but you're guiding margin up here sequentially. And is that just a function of the higher revenue base, or what is it that's helping you lift that margin? And how sticky and sustainable is that? Should we expect the margin to incrementally improve as we see that top line grow as well? Thank you.

Sure. For the June quarter margin guidance, you know, we factored in better product mix and, you know, so far we saw, and also we expect a higher utilization at all factories. So both factors contributed to the margin rebound.

Thank you.

We have a question from Jeremy Quan with Stifel. Your line is now open.

Yes, good afternoon and congrats on a very solid quarter and outlook, especially in this environment. Maybe a quick follow up on the tariff question. Just looking at your China JD, is it fair to say that the vast majority of that production is for use within China or even all of it? And can you remind us again how much the JV? What percent of your wafer requirements is sourced out of your China JV?

Sure. Yeah, JV is right now is accounted for about 20% also of our total supply. So right now, you know, under the current regulations and policies, and yet their impact from tariffs are kind of minimal to us.

Got it. And just following up on the utilization question, can you remind us where you are currently and, you know, both internally in your Oregon FAB and also at the JV?

JV, we don't count them as our internal capacity. We treated them as one of our suppliers. For us internally, overall utilization is around 80% to 90% range on an overall basis. And also, we still have additional external capacities, you know, to support our business.

Can you comment further on that? Have you developed additional foundry partners? And, you know, what kind of additional capacity is available to you at the JV?

Sure, yeah. We have been developing third-party boundaries during the last few years. Yeah, we'll continue to do that. That would add capacity even to support our next year's expected growth, so mapping out those capacity requirements right now.

um in terms of jv uh yet they still have additional capacity if we need it to support us great um and a question on the first congrats on the the very uh solid uh cash flow looks like it was about 17 million if you exclude the customer deposit repayments um Can you talk about what kind of cash flow dynamics you expect as you move throughout the year? And also on the CapEx side, I know you mentioned, I think it was 12 to 14 million next quarter. Can you just give us a sense of where that might land for the full calendar year 2025? Thank you.

Sure. Overall cash flow, I would expect that, yeah, it's kind of stable. for us at this point. Overall, next quarter, we expect to pay only $2 or $3 million on customer deposits. And then for the whole year, we still have about $16 million to go for the June quarter, September quarter, December quarter. In terms of overall, I mean, right now, we don't see a whole lot of issues with CapEx. So we're generally targeting 6% to 8% of our revenue. So this year could be around $40 million $50 million each. So this capex, I mean, from quarter to quarter could fluctuate. So last two or three quarters, we were running around $7 or $8 million. So next quarter, we expect like $12 million to $14 million or so. So by and large, we're still within our overall target.

Got it. And maybe one last question before I jump back into the queue later. Can you give us an update on the pricing environment and maybe a quick update also on the competitive landscape? I know in the past we've talked about, you know, local suppliers kind of increasingly at the low end. Any kind of detail you can provide would be great. And especially, you know, pricing as it relates

yeah just uh you know where where you see things going over the next maybe six to 12 months thank you okay sure uh asp erosion on the same product basis for the march quarter was uh tracking toward historical trend line um so the overall we saw increased competition from all players. I mean, big or small. So overall, what we want to do is to roll out our new products to provide better performance and more functionalities and to reset the ASP. So that's the name of the game. So then we'll continue to do that.

Got it. Thank you very much.

Thank you. Thanks.

If there are any additional questions, please press star 1 on your telephone keypad. We have a follow-up from Jeremy Kwan. Your line is now open.

Thank you. I guess I could stay down. follow up on the AI accelerated cards. You know, it sounds like that's going to be a pretty nice opportunity for you guys, and there could be potential to expand into other opportunities. Can you just give us a little bit more color into whether these are, you know, do you have any visibility to whether these are associated with, you know, any specific hyperscalers or AI providers in particular? And also, you know, yeah, what kind of, new opportunities are you looking at? Is it more accelerated cards or is it different kind of, I guess, architectural designs that you can talk about? Thank you.

Sure. So the near-term growth that we see has been in the AI-accelerated cards. And just a reminder, again, we're selling a total solution here, including a multi-phase controller. along with a power stage and actually quite a number of power stages per GPU. There is a wider range of graphics slash AI-solidated cards, from low-end, cost-effective ones to high-performance cards, and we are servicing the whole array of that. And, you know, we don't know exactly where it's going into in terms of the end-to-end customer, but I can say that, you know, our products are shipping into various... performance products for our direct customer. And we do expect that that's going to continue to grow. I think the wrap-up is still continuing to happen. We are guiding that it will grow further going into the June quarter and hopefully more after that as well too. But it doesn't stop there. Our initial growth for this year will be coming from the graphics side, but we're also working on getting into the data center side. In this earnings release, we did mention that we did achieve a design win on one data center application, and this is something that we already started shipping in this June quarter, and we are hoping also to get onto more programs beyond that. So that portion, I think, is just starting, and we're hoping to be able to expand into more programs after that.

Got it. And is this for both the onboard power as well as the, I guess, the, what is it called, the backplane power, the 48 volts or the higher voltage power coming in the data center?

Right now it's mainly still the low voltage solutions directly powering the GPU. So we're talking, again, the multi-phase controller coupled with multiple power stages.

Got it. And that goes for your data center side as well that you mentioned?

Yeah, except that the counts for the power stages go up even higher because of the higher performance.

Got it. Great. Thank you very much. Thank you.

There are no additional questions at this time, so I'll pass it back to the team for any closing remarks.

Okay, great. This is Steve Filet. Before we conclude, I'd like to just briefly mention two upcoming events the management team will be participating in, and they will be available for one-on-one meetings at the Dee Riley 25th Annual Institutional Investor Conference on May 21st in Marina del Rey, California, and the Stifel 2025 Cross-Sector Insight Conference on June 4th in Boston, Massachusetts. If you wish to request a meeting, please contact the institutional sales representative at each of the sponsoring banks. This concludes our call today. Thank you for your interest in AOS, and we look forward to talking to you again next quarter.

Take care now. Thank you.

Thank you for today's call. Thank you all for your participation. You may now disconnect your line.